Date: August 24, 2015
Welcome Horter advisors to the first installment of the Compliance Corner. Since our founding, training & development has been a fundamental part of the Horter value proposition. Simply put, we train advisors to build and grow successful investment advisory practices. Our investment in T&D has resulted in one of the fastest growing registered investment advisory practices in the country.
Because we are entrusted with the most important and sensitive information about our clients, it is not surprising that we are in a highly regulated industry. We are finding that we are spending an increasing amount of time dealing with financial regulators. This is a trend we fully expect to continue for several obvious reasons. First, Horter continues to grow as a company – we now have 220 advisors registered with our firm, up from 170 just one year ago, an increase of 30%. In addition, the average tenure of advisors registered with Horter continues to edge up, increasing from 1.8 years a year ago to 1.9 years today. In time, it is likely that every advisor will eventually become the focus of an examination by either the SEC or a state regulatory body.
With that as the background, we have been considering how to best get relevant and timely compliance information into the hands of our advisors. To continue the message from the first paragraph, we want to train our advisors to build and grow successful and compliant investment advisory practices. Furthermore, we want our advisors to have the ability to successfully handle any examination of their investment advisory business.
We will be using the Compliance Corner to discuss a variety of topics. Some of the topics we plan to address over the next few months include:
- Preparing for an Examination
- Accommodation Forgeries
- Client Complaints
- Code of Ethics
- Books & Records Requirements
- Client Referral Rewards
- Solicitor Agreements
- Business Continuity Planning
- Data Security
- Phishing Scams
- Use of Certifications, Professional Designations and other Credentials
- Effective and Compliant Use of Social Media
- Sales of Products and Services to Seniors
If you have an issue that you would like us to address, please email email@example.com and we would be happy to consider your request for a future installment of the Compliance Corner.
In addition to providing guidance on a variety of compliance topics, we will also keep you up to date and informed regarding what we are doing as a department, including major projects and initiatives. As many of you are already aware, Horter has been working with Oyster Consulting, an outside compliance consulting firm, since February to help enhance the effectiveness of our compliance operations. Working with Oyster, we have made significant improvements to our internal policies and procedures (P&P) and have worked hard to develop a strong internal control environment. The following is a list of just some of our compliance accomplishments over the past 6 months:
- Updated ADV Part 2A “Firm Brochure”
- New Data Security P&P
- New Flexible Futures Due Diligence P&P
- Updated Advertising P&P
- Updated Social Media P&P
- Updated Alternative Investment Due Diligence P&P
- Updated Third Party Money Manager Due Diligence P&P
- Implemented Horter Investment Committee
- New Business Continuity Plan
- Updated Portfolio Statistics disclosures to be compliant with Advertising Rules
- Implemented Compliance Training (onsite monthly training & webinars)
We look forward to continuing to develop and enhance Horter’s compliance program and working with you, our advisors, to develop your compliance programs. Together we can help you navigate your first, or in some cases next, regulatory examination.
In this first installment of Compliance Corner, we want to acquaint advisors with the different types of regulatory exams. The SEC and state regulators are granted examination authority by Section 204 of the Investment Advisers Act of 1940. Examinations are designed to detect fraud and other violations of the securities laws, foster compliance with those laws and help ensure that the SEC is continually made aware of developments and areas of potential risk related to investment advisory firms. Ultimately, regulators are looking to protect the citizens in their jurisdictions. In 2015, approximately 10% of all investment advisers were subject to an examination by the SEC. This number is expected to increase to 12% in 2016. This includes all types of examinations: Routine Exams, Cause Exams and Sweep Exams. These different types are described below.
If you are contacted by a state or SEC regulator, either by phone, mail or in person, the first thing you should do is contact Horter’s compliance department before responding to the regulator.
These are periodic, routine examinations generally conducted to determine if the advisor is complying with the rules and regulations. These exams are detailed and comprehensive and examiners can be onsite anywhere from a day to several weeks depending on the size and complexity of the advisor. The examination program utilizes a risk-based process, identifying higher-risk activities (e.g. use of alternative investments) for closer scrutiny.
Regulators may become aware of a specific issue or concern regarding your practice and respond with an examination. These concerns may start from client complaints, tips, referrals, media coverage or internal inquiries.
These examinations are conducted to gather information for a few or even just one section of an advisor’s practice. These areas, for example, may be advertising, custody, disaster recovery or alternative investments to name just a few. With these exams, regulators conduct an investigation of a particular set of business practices across numerous firms. Sweep exams are typically initiated when regulators become concerned over a particular business practice.
We hope you have enjoyed our inaugural edition of Compliance Corner. The compliance department is looking forward to bringing guidance to our advisors on a regular basis and helping you to build and grow successful and compliant investment advisory practices. Your feedback is always appreciated and can be sent to firstname.lastname@example.org